The Pros & Cons of Consumer Credit Counseling

When you have a large number of credit accounts, it may be difficult to handle making all of the payments as agreed. This leads many people to seek the help of a consumer credit counseling service. While this type of service can help you save money on interest, you will be paying for a service you could perform yourself.

Lower Interest

When you work with a credit counseling service, they will enter you into a debt management plan. This is a plan that involves making one payment to the credit counseling service and then they in turn pay all of your creditors for you. A credit counseling service can also negotiate lower interest rates for you on your credit accounts. This could potentially save you thousands of dollars depending on you how much you owe and your current interest rates.

Single Payment

Another advantage of using a credit counseling service is that you will only have to make one payment every month. Having one payment to make instead of several payments every month is much easier to plan for financially. You know exactly when the one payment is due and you can ensure that you will have enough money on hand for the payment. If you get extra money to pay down your debt, you can simply give it to the credit counseling service and they will handle the rest.

Obtaining New Credit

One of the disadvantages of using a credit counseling services that you will not be able to obtain new credit while you are in the program. One of the rules of the debt management plan is that you cannot open up any new accounts during the duration of the plan. Since most debt management plans are designed around a five year term, this means that you cannot borrow any more money for at least five years. While this could help you avoid more debt, it can also be limiting financially.

Fees

When you work with a credit counseling service, you will have to pay them a monthly fee for the service that they provide. Even though the credit counseling service does go through the initial process of negotiating your interest rates at the beginning of the debt management plan, after that they do not do much. They simply take your payments every month and then make your payments for you. For this, you might have to pay a fee of $30 to $50 per month. You could negotiate your own debt management plan and save this money.